Macroeconomic policies:
- Macroeconomic policies (monetary and fiscal policies) also cause business cycles. Expansionary policies, such as increased government spending and/or tax cuts, are the most common method of boosting aggregate demand.
- This results in booms. Similarly, softening of interest rates, often motivated by political motives, leads to inflationary euects and decline in unemployment rates.
- Anti- inflationary measures, such as reduction in government spending, increase in taxes and interest rates cause a downward pressure on the aggregate demand and the economy slows down.
- At times, such slowdowns may be drastic, showing negative growth rates and may ultimately end up in recession.
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